Bruce Helmer and Peg Webb
In 2018, the United States reached a remarkable milestone. The percentage of U.S. households reporting giving to nonprofit organizations fell to 49.6%, falling below 50% for the first time, according to the Charity Panel Survey. In 2000, 66.6% of Americans reported making charitable donations.
Although the average amount given by Americans overall has declined over the past 20 years, they are actually giving more due to an increase in the proportion of households that donate (the “more dollars, fewer donors” effect). ).
In 1960, 9.8% of all donors gave half of all donations. By 2012, half of all donations came from 1.8% of potential donors. This trend of fewer donors giving more money is also accompanied by a decline in volunteerism. People who don’t volunteer for charity also appear to be much less likely to donate money to charity. Volunteer work has been on the decline for the past few decades, and the trend is even stronger among people in low-income groups.
But charitable giving offers two major benefits to benefactors. It can help transfer wealth efficiently and, on the other hand, strengthen commitment to social responsibility.
Possible reasons for donor decline (both financial and time)
Although trends vary widely by region and socio-economic group, many studies show a correlation between the Great Recession and donor attrition. Some point to an overall social disconnect brought about by the pandemic, with more Americans choosing not to belong to organized religion. It is also possible that philanthropy may have declined as the civic-minded “Greatest Generation” gradually died out.
And then there’s tax policy. The Tax Cuts and Jobs Act of 2017 (TCJA) actually reduced the incentive to make charitable contributions by increasing the standard deduction. Nearly 70% of high-income households claimed a charitable deduction before the TCJA, but that number dropped to 29% after the TCJA.
Why is philanthropy important?
About the institutions, organizations, networks and associations that interest you most and how they help make communities and our world more decent, humane, healthier and more beautiful. Think about it. Hospitals and clinics, museums, universities, symphony orchestras, theaters, animal shelters, PTAs, and public libraries are just a few of the institutions that rely on charitable donations to support their missions.
Additionally, America’s tradition of generosity has given us a deep sense of meaning and mutual support for centuries. It fills a gap that the U.S. government was not designed or equipped to fill.
Finally, philanthropy and philanthropy can help wealthy families establish their legacies while also achieving strategic tax planning goals. Whether your net worth is $1 million or $100 million, you should consider philanthropy as a cornerstone of your family’s financial planning. Trusts not only give you more options to support your favorite charities through your estate, but they can also provide you and your heirs with a tax-advantaged source of income. However, setting up and administering a trust can be complex, and in such cases you should consider consulting with a tax professional, qualified financial advisor, or real estate attorney.
Two relatively simple options for charitable giving
• Donor Advised Funds: If you want to give to charity during your lifetime, a Donor Advised Fund (DAF) may be a good option.
A DAF allows you to make a large gift now, taking into account the charitable deduction, but spread out your gift over time. It is relatively easy to set up and has low initial setup and annual management costs. The initial capital for a DAF account is typically small, $5,000, but does not need to be distributed annually. A DAF allows you to donate to charities recognized by the IRS, typically 501(c)(3) tax-exempt organizations. There is no sales tax and you can send gifts anonymously. Importantly, cash donations or donations of publicly traded securities are typically eligible for an income tax deduction of up to 60% of adjusted gross income (AGI). For privately traded assets or securities, a charitable deduction is allowed from the fair market value of up to 30% of AGI.
• RMD Qualified Charitable Distributions: The Internal Revenue Code allows people in their 70s and older to transfer funds directly from their IRAs to charity without adverse tax consequences, through so-called Qualified Charitable Distributions (QCDs). can. A QCD is an easy way to meet required minimum distribution obligations if you are age 73 or older at the time of the transfer. Under the QCD provisions, up to $100,000 per year ($200,000 for married couples) can be transferred directly from each qualified taxpayer’s IRA to a charity as long as it is never touched.
Certain rules and restrictions apply to QCD. For example, you need a custodian to process distributions, and you can’t claim deductions if you itemize them. Not all charities, such as DAFs and private foundations, can accept QCDs. Although you can use a Roth IRA for a QCD, there are no tax benefits because Roths are designed to provide tax-free income in the future.
On the other hand, the transfer is not treated as a taxable distribution for federal income tax purposes, so it may effectively reduce your income for Social Security purposes. New rules under the SECURE 2.0 Federal Retirement Act of 2022 also improve QCD benefits in two ways. First, the annual rollover limit will be indexed for inflation starting in 2024, so you and your spouse may be able to give more to your favorite charities in the future. Second, your QCD can include a one-time gift of up to $50,000 to a split interest entity such as a Charitable Remainder Trust (CRT) or Charitable Gift Annuity (CGA) (these amounts are also indexed to inflation). Masu). .
Incorporating philanthropy into your overall estate plan requires careful consideration. Working with an estate planning professional or financial advisor can be extremely helpful in devising a charitable giving strategy that works seamlessly with your estate plan while contributing to the public good.
The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations to any particular person.
Bruce Helmer and Peg Webb are financial advisors at Wealth Enhancement Group and co-hosts of “Your Money” on WCCO AM 830 Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Securities offered through LPL Financial, member FINRA/SIPC. Advisory services are provided through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.
